Government may prop up fund with Chunghwa shares

The government is considering transferring 489 million shares in state-run Chunghwa Telecom (中華電信) to the NT$500 billion National Stabilization Fund.

The transfer, should it take place, would shore up the battered fund, which is sitting on combined paper and real losses of roughly NT$41.7 billion after the government's failed efforts to support the TAIEX last year.

According to a Ministry of Finance official, the proposal needs further study and no final decision is likely before August.

In addition to helping the stock fund recoup some of its losses, the transfer would also help to address another source of embarrassment for the government -- the failed privatization of Chunghwa.

The government last year took the state-run carrier public at NT$104 a share, after many market watchers said investors would be willing to pay no more than NT$60 a share for Chunghwa.

The stock closed at NT$58.50 yesterday -- more than 40 percent lower than its debut price.

The government is also in the midst of a 10-day auction to unload 480 million shares in an effort to complete the phone company's privatization process.

But so far investors have bought just 18.57 million shares, leaving a large chunk of Chunghwa begging for buyers.

According to Chang Shou-liang (張秀蓮), director of the Department of National Treasury under the finance ministry, the national stabilization fund's rules require that the government make up for any losses at the fund -- real or unrealized.

"Losses at the fund through the end of last year will have to be subsidized by the national treasury before the end of August," Chang said. "As to whether the subsidy can come in the form of Chunghwa shares or other equities, there is still some question as to the legality of the proposal."

According to a newspaper report yesterday, of the fund's NT$41.7 billion in losses through the end of last year, N$5 billion is a realized loss and NT$36.7 billion is on paper.

A large part of the government's stock intervention efforts came late last year when the DPP and opposition legislators were locked in a fierce battle over the Fourth Nuclear Power Plant (核四).

The stabilization fund was formed to bolster shares when non-fundamental factors -- such as saber-rattling from China or a natural disaster such as the 921 earthquake -- scare investors into panic-selling.